INSUBCONTINENT EXCLUSIVE:
Noah LichtensteinContributor
Noah Lichtenstein is the founder and managing partner of Crossover, a diversified private technology fund
through delivery apps four or five times per week
With the growing coronavirus pandemic closing restaurants and consumers self-isolating, it is likely we will see a spike in food delivery
much like the 20% jump China reported during the peak of its crisis.With the food delivery sector rocketing toward a projected $365 billion
office at the push of a button
And the implicit trade-off we all make as consumers is that we are willing to pay a little extra for the convenience of having things
delivered to our doorstep.But while consumers have signed on to pay a premium for convenience, the food delivery ecosystem suffers from a
lack of differentiation, compounded by an opaque and confusing web of markups and fees
consumers for the same items instead of innovating on differentiated products or services
Aside from a handful of exclusive delivery partnerships with a few premium restaurants, consumers are instead faced with a delivery market
where the services are virtually indistinguishable, yet the price they pay for exact same item from the exact same restaurant can vary by
20% or more depending on the app they use.Over the past decade, we have seen a new wave of industry-leading technology companies emerge by
focusing on innovation in otherwise commoditized markets, from financial services to consumer products
consumer companies have won through innovation and pricing transparency.Competition between delivery companies with billions in funding is
fierce, and with so much of that capital going toward chasing top-line growth through promos, discounts and other give-aways, innovation on
core product has fallen by the wayside
In spite of the billions already invested into the food delivery sector by venture capitalists and massive growth projected in the years
ahead, we believe that the industry is still in its infancy, and remains ripe for innovation
The ultimate winners will be those companies that achieve profitability and market leadership through the delivery of not just food, but
better products, better services and transparent pricing.Food delivery: The pricing matrixTo understand how the food delivery ecosystem
prices the same items from the same restaurants so differently, we decided to do some research to see if we could shed some light on what
The biggest names in food delivery apps in the United States are DoorDash, Uber Eats, Postmates and Grubhub (which owns Seamless)
The core components of pricing across all food delivery apps are:Menu item: the actual food you are orderingService fee: a fee charged by
the delivery company for providing the serviceTaxes: sales tax on your order based on applicable local tax lawsDelivery fee: the price for
having the food deliveredGratuity: this is the optional tip for the delivery driver**Because gratuity is optional and not tied to any
specific delivery service, we excluded it from the data set.ProcessOver several days in December we randomly selected 10 restaurants each in
Los Angeles, New York and San Francisco that were available on at least four of the five apps and selected the same menu item for delivery
to the exact same address
We compiled all data over a 48-hour span and tried to compare pricing for each restaurant/food item combo as close to the same time of day
We then broke down all pricing by the individual components and put the line-item data into a spreadsheet for comparison (link to raw data
set shared at the bottom).Finally, to help clarify the differences in pricing, we introduced a new metric called Total Meal Cost (TMC) to
refer to the overall amount it costs to order a meal through a delivery app, compared with ordering that same meal directly from the
learned: While as consumers we expect to pay a premium for the convenience of the service, it turns out there can be a very significant
difference between both the price you would pay when ordering directly from a restaurant, as well as what each of the delivery apps charge
you would shell out a whopping 40.5% more when using Postmates.To put the markups in further context, if you ordered $50 worth of food from
a restaurant, the TMC would come to $58.49 through Seamless compared with $70.23 if you order through Postmates
The graphic below demonstrates how all the apps stack up.In addition to looking at the overall TMC, we also wanted to zoom in on the data so
From a pricing perspective, it seems natural that delivery fees would have the most variability
So while money is money and delivery cost certainly matters, we wanted to also look at how the markup of each component of the TMC differs
In fact, in 21 of the 28 data points available for Seamless, the company charged no service fee at all
This offsets their highest comparative markup of menu-item list price
Postmates gets the triple-whammy of high markup, high service fee and high delivery fee
Caviar generally huddles in the middle of the pack on all variables, though its service fee is pretty hefty for Los Angeles residents, at
DoorDash falls victim to its delivery fees, which as the highest in the batch undermine their comparatively low menu markups and service
fees.Other observationsIn addition to the high-level take-aways, a few other things we found interesting in the data:Meal price markups over
RLP in the delivery apps vary by city
On average across all five delivery apps, Los Angeles was marked up the most (6.49%), followed by San Francisco (5.98%), then New York
(1.77%)Service fees:
Different Approaches
Uber Eats and DoorDash are consistent in their service fee pricing being pegged to 15% and 11%, respectively
Seamless does not typically charge a service fee
Caviar and Postmates are less clear and consistent on their service fees, though Caviar has a cap of 18%.Service fee fluctuation by market
Service fees hold steady across the three surveyed markets for Uber Eats, DoorDash and Seamless, while fluctuating up to 3% across Postmates
and Caviar.Delivery fee fluctuation by market
On average across the five delivery apps, San Francisco has the most expensive delivery fees ($2.58), followed by New York ($2.08), then Los
But other publications have done solid research comparing relative market share, and for the purposes of this analysis, each of the delivery
services offered no shortage of options across cuisines.A quick note on taxesTaxes charged by the five delivery apps actually showed some
variance, as well, and there is significant legal debate currently around how taxes should be calculated
hands of the delivery services
We spoke with several restaurants about their delivery partnerships and best practices, and several noted that even though delivery partners
strongly discourage doing so, they often elect to increase on-app list prices when selling through delivery apps as a way of offsetting the
up to 30% fee the delivery apps charge
And while we have not seen any egregious examples of menu pricing markups, in talking with several restaurant owners we were surprised to
learn that the delivery companies themselves often list restaurants they have no formal relationship with
between delivery apps today is not based on innovations that meaningfully impact user experience, but instead comes down to a handful of
restaurant brands with which the various apps are in a land grab to create exclusive delivery relationships
Caviar has local San Francisco favorite Souvla and DoorDash has Outback Steakhouse
While this strategy may help for those users that order religiously from these restaurants, reports suggest that the national chain deals
focus on pushing users toward their respective loyalty plans as a way of locking in more predictable revenue and creating brand loyalty in
an otherwise commoditized offering
These plans generally include a monthly fee in exchange for no delivery fee for orders above a certain minimum, and include Postmates
Unlimited ($9.99/month or $99/year), DashPass from DoorDash ($9.99/month + tie-in for Caviar) and Uber offers a rewards program that works
across Eats, rides, bikes and scooters.Opportunity to innovateGetting millions of meals delivered quickly, accurately and still warm (or
cold) from restaurants to consumers each day is no easy feat
Continually improving the core logistics associated with this undertaking requires massive funding and ongoing investment
You can only play phone tag with your delivery driver and receive a soggy Egg McMuffin so many times before you give up on paying a premium
That said, delivery apps must equally invest in consumer-facing innovations if they want to build sustainable brands and reach
profitability.There are far better product minds who can opine on the best ways to innovate on the delivery app experience, but a few
recommendations.Multi-location ordering (e.g
sushi and pizza in the same order), which will be further enabled through the growth of multi-tenant virtual kitchens (see below).Revamped
packaging: Keep hot items hot and cold items cold while exploring more eco-friendly options that save money and the environment.One-tap
order button for your most-frequently ordered meals.Customization: The ability to better support options beyond the confines of a fixed menu
development.Pictures and reviews: Delivery apps should be able to better leverage their millions of users to collect more data from
customers than restaurant-level reviews
The apps that better harness item-level reviews, imagery and similar data will make it harder for others to keep up.Premium offerings:
Similar to choosing Uber Black, users can pay extra for premium service, such as rush orders that skip the line or setting the expectation
that the delivery driver brings items to your front door (versus curbside).Diet and nutrition: Better nutritional data and search
functionality (such as searching by calories or Keto), as well as integration with health and fitness-tracking apps and popular diet
secret that companies in the on-demand economy are still struggling to figure out how to make the economics work as both public and private
investors become increasingly impatient
In the meantime, the push for profitability has also resulted in questionable labor practices, such as DoorDash applying tips toward its
guaranteed delivery minimum out of pocket (a practice the company has since reversed after public outcry).As the on-demand food delivery
economy continues to hurtle toward a projected $385 billion by 2030, it has also begun to reshape the global restaurant industry
As more and more consumers opt (or are ordered) to stay home and press a button for food instead of going out, restaurant owners are
increasingly choosing to forgo expensive real estate and front-of-house staff, and are instead expanding into virtual kitchens that cater
exclusively to the on-demand audience
As the virtual kitchen market grows, so too will the demand for the apps that get the food from the delivery-only commercial kitchens to
consumers.As the battle for market share and profitability heats up in the new wild west of food, consumers have demonstrated they are
willing to accept the implicit trade-off of paying a premium for convenience
But as this industry pushes forward toward profitability and sustainable operations, we believe that the companies that embrace transparency
outlier can skew the data
That said, we believe the data set is sufficient to support our core takeaways.The same address was used for all orders in each city.All
data was pulled in a 48 hour weekday period and at approximately the same time of day.Some apps offer a form of membership plan where
delivery fees are waived in exchange for a paid membership fee
relationships with a subset of restaurants
This was not factored into the data set.The full data set can be accessed here.Thanks to Josh Elman, Blake Ross, Jesse Lichtenstein, Jared
Morgenstern, Roylene Kralich, Nicolas Bernadi and Sam Kokin for their help on this post.
